Options Update: Hansen Natural Sees Heavy Pre-Earnings Option Activity
My Shame
Ever wonder what your life would be like if you shared a name with a popular 90’s boy band? It is time for you to feel my sad. Way, way, way, way, way back in the Fightmaster (or Sonneborn, my mom’s side) lineage is a man named John Hansen. Word has it that he was a revolutionary, or something of that sort … well, that is the name that was given to me, right between the Mark and the Fightmaster (were you expecting my middle name to be New Kids on the Block? Or Menudo?).
Yes, I will now admit that my middle name is Hansen, which wasn’t a problem until those confounded MMMMBop kids came along. You see, my wife has a sense of humor – and like to start singing that song when she was watching my conquests on the softball field. It is my shame, a name that I carry like a scarlet “A” emblazoned on my chest.
Really, it isn’t that dramatic, but it is a nice lead in to today’s focus stock, Hansen Natural
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PowerRating). The juice jockey is set to step into the earnings confessional this afternoon, with the Street expecting second-quarter earnings of 52 cents per share. The stock is lower heading into the report, perhaps because investors are spooked by the firm’s first-quarter earnings shortfall. The news even has stoked the interest of investors and option players alike, which is what caught my eye today.
According to today’s Intraday Volume Explosion List, it certainly appears that option players have a thirst for HANS, a thirst that can only be quenched by options. On a normal day, 1,233 total puts trade on HANS – this number has increased more than 15 times. Of the 18,655 contracts crossing the tape, 18,350 of them are of the August 35 variety (QHO TG). Over to calls, total volume has also increased more than 15 times the average, with 18,419 contracts crossing on the August 35 call (QHO HG).
A Natural Assumption
Are you thinking what I’m thinking? Yeah, we could be dealing with a straddle play, but I want to make sure. With my suspicions in tow, I scoured over the numbers. Guess what I found … 4 identical blocks of transactions on both QHO TG and QHO HG. All of these transactions were sizable (3,500; 2,400; 8,000; and 4,000 on both the put and call sides) and crossed between the bid and ask.
Here is the caveat. This strike is 14 points away from being in the money for the call, which means we could be dealing with a debit spread of some sort. The calls could have been sold and the puts purchased, there are other possibilities. The problem is that we don’t know the exact price of the transaction, which would have been most helpful.
For argument’s sake, let’s assume that both contracts were purchased (which has to happen for a straddle, by definition), and do the math for the largest transaction – 8,000 contracts. For the 35 puts, the transaction price was $13.60; that’s 8,000 X 100 to get 800,000 at $13.60 apiece for a total price tag of $10,880,000. That’s a lot of cash, but this contract is rather deep in the money, with HANS trading at $21.52. On the call side, the 800,000 contracts carried a price of a dime, so the purchase cost $80,000. In perspective, this isn’t a great deal of cabbage to dish out for insurance.
Out of Juice?
HANS has had a rough year, dropping more than 50% since January 1. The trend gets worse when you expand the timeline out to include the past 52 weeks. During this span, HANS has lost 54%, and it has its 10-week and 20-week moving averages to thank for the slump. The last time HANS topped both of these trendlines was the first week of November 2007. Should earnings come in better than expected, it will be tough for HANS to break through the 35 level – especially with the 20-week moving average lurking in the 30 region.
Ahead of this afternoon’s earnings, the downside certainly appears to have the most going for it, but is there any chance for pessimism to unwind and push the stock higher following stronger-than-expected results? A little, but not too much. HANS’s Schaeffer’s put/call open interest ratio (SOIR) of 1.36 is higher than 60% of those taken during the past 52 weeks. Yes, this number is slightly bearish; but I would like to see it in the 80th to 90th percentile.
The same goes for analysts. Half of the 6 analysts following HANS rate it a “hold” or worse while the other 3 rate it a “strong buy.” I don’t like this configuration at all, but there is a chance for positive initiations and an upgrade or 2. Again, is it enough to push the stock through all the overhead resistance? I doubt it.
HANS bulls can take some solace in the fact that 32% of the stock is sold short. This accumulation of bearish bets could result in a massive short-covering rally if strong results force the bears to buy back their bets. In fact, it could take more than 7.5 days for this short covering to run its course. On the flip side, poor results could result in more shorts added, which could act as an anchor to the stock.
The Verdict?
Is there a chance for the stock to advance after today’s earnings report? Yes, albeit a slim chance. Is there a chance for the stock to drop in the wake of today’s announcement? Yes, and it is a better chance. Keep an ear out for the earnings report around 5 PM EST this afternoon, then watch as the stock reacts.
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